Friday, September 29, 2006

Greg Mankiw, on Wednesday of this week, had an interesting blog on the history of supply and demand curves. The discussion and follow-up was interesting (although I'm sure many would find it a bit esoteric). But it generated a couple of responses on other blogs. Many of which were interesting in different ways. Among the more interesting was Don Boudreaux's post on Thursday about Smith and Marshall and wealth and poverty. In both Mankiw's and Boudreaux's posts, the comments are also worth perusing.

Now having said this, I suspect there may not be many high school economics teachers who are interested in this sort of thing. I always have been. But I suspect it's partially the result of my interest in history.

Robert Frank has an excellent article in the New York Times titled The More We Make, the Better We Want. The article really explains the how our unlimited wants or our never-ending sense of not being satisfied acts as an engine of economic growth. This is a great article to have around to have students read and discuss. There are numerous directions to take this.

Should we be satisfied at some point? If so, where? How does standard of living figure into choices we make? Are my wants the same as yours, and subject to the same elasticities? Should they be?

As always, I'd be interested to hear your thoughts and suggestions.

Posted by TSchilling at September 29, 2006 7:44 PM

CommentsEconomists Are destroying America. Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:• Increase wages• Create trade surpluses (for the US)• Reduce illegal immigration

Well, their trade policies have been in effect for about 15 years. Let’s review the results:• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)• Illegal immigration out of control• Soaring trade deficits, much with countries that use slave and child labor• Personal and national debt both out-of-control• Global environments threatened by lax trade deal enforcement

Economists keep advocating policies that aren’t working. Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.” Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

Why aren’t American economists shouting from street corners? America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:• Economists are too beholden to corporations and special interests that provide them with research grants.• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.• Economists refuse to admit they make mistakes.

Economic ambulance chasers: Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.

Wednesday, September 20, 2006

This is my final post (planned post, that is) regarding economic thoughts in Solzhenitsyn's A Day in the Life of Ivan Denisovich. And it involves a comment that comes about halfway through the book. The character Shukov is wandering over the worksite when he comes upon a piece of scrap metal. He can't think of an immediate use for it, but decides to place it in a pocket. "It's better to be thrifty than wealthy."

Those of us who teach economics or personal finance can certainly expound on this statement. Ultimately, being thrifty creates wealth. Unfortunately wealth doesn't always create thrift. In a personal finance context, budgeting, planning, investing, all of these are connected with thrift. In budgeting we teach "pay yourself first." We encourage students to have a plan for their savings (short-term, medium-term, long-term goals), and to examine how they want to invest. In a larger economic context, it is thrift (saving) that ultimately creates capital. How often when we hear people bemoan the trade deficit, is it followed by a connection to our nation's poor job of saving? ("If we can't provide the capital for our own growth, we should be glad that someone can.") All of this, in my mind, speaks to thrift's role in creating wealth.

As far as wealth creating thrift, it would seem on the surface that accumulated wealth does not create an incentive for thrift. While it is possible that habits built in the accumulation of thrift may carry on for a while, one need not look far to see examples of individuals who were not responsible for creating wealth, or who seem to have little regard for maintaining it. In some respects, this takes us back to the statement that was the subject of the first of the posts sparked by this novel.

It would seem that "It's better to be thrifty than wealthy." has the potential to generate discussion in a number of classes and on a number of levels. Your thoughts and experiences are welcome. Please share them.

Posted by TSchilling at September 20, 2006 3:03 PM

CommentsEconomics are not only in the marketing of their goods. Economics are in the manufacturing and in the marketing of our goods and making more of the money is not only profit making. You are selling what you have produced.

Tuesday, September 19, 2006

As I indicated in my previous post, a rereading of Solzhenitsyn's A Day in the Life of Ivan Denisovich brought things to my attention that I missed in the first reading many years ago as an undergrad--an undergrad that had yet to learn to appreciate the many fine lessons to be gained through the lens of economics, I might add.

This second aphorism comes not quite halfway through the book. Solzhenitsyn’s character is describing the work-site kitchen where the prisoners have lunch, and how the site cook got the necessaries (food, fuel, water) from the main camp to the work site without having to carry everything himself. Not so surprisingly he hired transport using the easiest "currency" at hand--food. Those workers who carried the supplies got extra--deducted from the ration of the other workers. As Denisovich puts it, "It's easy to give away things that don't belong to you."

Apply that statement to other circumstances. How much more difficult is it to apply one's own resources to a need/want, than to apply someone else's. Our children frequently ask for this or that. Younger children often do not understand the link between production and consumption, i.e. if you work and get paid, that provides resources that can be exchanged for goods and services. But older children often subconsciously (or consciously) are aware that it's not their resources that will fill the need. We ourselves ask friends and family for resources that are not ours and may not even be theirs. But do we use those resources as if they were ours? Many of us do, but I suspect more of us do not. When we use the resources of others for our own purposes, we may not always use them most effectively, or as well as we would if they were our own. Some people take this a step further and even say this applies to how tax funds are used by various levels of government. But others may counter, "if we are responsible, we use the resources of others as if they were our own. That's just good stewardship." I personally subscribe to the idea that ownership can provide a stronger motive for efficient use.

Either way, the quote above is a good discussion starter for your classroom. Your thoughts and comments are welcome.

Monday, September 18, 2006

While I did not read it in the spring, I did manage to get to it over the summer. I had first read the book many years ago as an undergraduate. I remembered then thinking that, while interesting, it was tedious -- I mean it really was about "one day in the life of Ivan Denisovich," a political prisoner in a Soviet labor camp. How exciting could it be?

Having reread it, I can predict "you won’t see this become a summer blockbuster at your local theater--no car chases and explosions." But with the passage of time has come an appreciation for different aspects. The book is now not just interesting, it is very interesting. It is interesting on different levels, some of them growing out of my occupation and preoccupation with economic and financial education.

I was particularly struck by a number of short ruminations by the main character that described his economic environment and choices. The first that struck me came early in the book when Denisovich describes a fellow prisoner, Shukov, who had not caught on to the value of bribes within the prison. Shukov, it seems, was honest. Solzhenitsyn writes, "Easy money doesn't weigh anything and it doesn't give you that good feeling you get when you really earn it. The old saying was true -- what you don't pay for honestly, you don't get good value for."

One thing I took away from that passage was an appreciation of how some people value things, or don't value them. Many of us have seen how little things mean to people for whom things come too easily. There's often a sense of entitlement rather than a pride of ownership; and feeling that anything is easily replaced. This may be so if it comes easily. It is less so if one has to or chooses to work hard and long for it.

I have one or two more of these short observations from the book. I hope to get them posted this week. In the interim, your thoughts are welcome and appreciated.

Thursday, September 14, 2006

Back in November 2005, I put up a post that discussed the term "rich" and how we get students to understand the difference between income and wealth.

The recent kerfuffle surrounding the release of the Census Bureau's findings on 2005 income has stirred up a lot of discussion in the blogosphere along similar lines regarding what the data means. I won't list all the blogs I've read that commented, good or bad, about the information, but suffice it to say that there's been a lot of use, abuse and misuse of the information, for all kinds of purposes.

I will however point to a post on TCS Daily by David Henderson that I read today that speaks to the practice/mistake of comparing income and wealth. It also raises the point that households in different quintiles have different compositions and work patterns. I will also throw in one further observation. People in one income quintile don’t necessarily stay in that quintile.

On that last point I will refer you to an article that appeared in the Federal Reserve Bank of Dallas 1995 Annual Report. I remember that the article was greeted with much debate and some disagreement when it first appeared. And you can feel free to disagree with the data and methods. But I suspect the premise, that income changes as we move through our careers, is probably sound. After all, there is a "life-cycle hypothesis" in economics that is based on the observation that income changes (as well as spending) over time. Now, I suspect that whether income changes significantly enough within a household to move one through one or more quintiles over time depends on the composition and work patterns.

Is this an issue worth discussing with your students? Your thoughts are welcome.

Blog Archive Note

All entries prior to August 15, 2007 appeared on the economic education blog of the Federal Reserve Bank of Chicago. Entries between August 15, 2007 and July 31, 2009 were under the auspices of the Powell Center for Economic Literacy in Richmond, VA.